Neil Sands
While economists expect the government to prune spending in Thursday’s Budget, the NZ Taxpayers’ Union (NZTU) has challenged Finance Minister Nicola Willis to take a chainsaw to state expenditure in her quest to return the books to surplus.
In the lead up to Willis’ big day, the NZTU has published a proposal for swingeing cuts to welfare, the public sector and government-funded entities, which also calls for a higher retirement age and compulsory superannuation funding by individuals and companies. “It takes on the elephants in the room: superannuation, corporate welfare, bloated bureaucracies and failing state-owned assets,” NZTU executive director Jordan Williams says in the publication, titled A Pathway to Surplus.
The challenges facing Willis are widely acknowledged by leading economists: US President Donald Trump’s chaotic tariff policy threatens to hobble global growth, which in turn impacts the New Zealand government’s tax base.
“Budget 2025 will be delivered against a highly uncertain and deteriorating global backdrop,” Kiwibank economists said in a preview. “A downgrade to the Treasury’s economic projections is inevitable. A weaker short-term economic outlook, particularly for our trading partner growth, will likely weigh on forecast Crown revenues.”
On top of this, New Zealand is struggling to rein in government spending that ballooned enormously during the pandemic, fuelling net core Crown debt that currently stands at 43% of GDP.
‘Unsustainable’ spending
ASB says net public debt has jumped by $120 billion since the pandemic, while ANZ estimates current government expenditure is $15b a year higher that the 2018/19, the most recent pre-covid comparison available.
“A significant portion of the inflation-fuelling fiscal expansion undertaken by the last government hasn’t been unwound,” ANZ senior economist Miles Workman said.
Workman indicated minor tweaks would not solve the problem.
“The government’s relatively gradual approach to consolidating the last government’s unsustainable expansion means the fiscal outlook is likely to remain challenged and this is unlikely to be the last tight Budget,” he said. “Structural deficits are likely to be forecast for years to come.”
The government’s preferred method of measuring its short-term fiscal operating targets is OBEGALx (Operating Balance before Gains and Losses ex ACC balances).
It is forecast to return to a modest surplus in 2028/29 and ASB senior economist Mark Smith believes this will be confirmed in Thursday’s Budget.
Smith noted that Willis has already said the Budget’s operating allowance – the funds available for new spending – will be cut to $1.3b from $2.4b. Recent changes to the pay equity regime are expected to save billions more.
Smith predicted any extra spending would go on key focus areas, including health, education, defence, law and order and targeted cost-of-living relief, but most government departments were unlikely to get extra funding.
He said the changes did not address the broader debt issue facing the government.
“Fiscal consolidation is needed to ‘reset’ the trajectory of the public finances,” he said. “The $120b jump in net public debt since covid and ongoing structural deficits suggest that current fiscal settings are on an unsustainable trajectory, particularly in light of longer-term fiscal commitments.”
Tough decisions, tougher sell
The NZTU believes it has a blueprint for the reset to government finances that Smith says is needed, although many of its proposals would be a tough sell politically.
These include raising the superannuation age to 67 and indexing it to life expectancy, as well as immediately halting contributions to the government Super Fund (currently $880m) and selling off its assets to reduce Crown debt by $75b.
The government subsidy to encourage employee superannuation contributions would also be axed. Instead, individuals and employers would each make compulsory contributions of 4.0%.
Welfare would face huge cutbacks, including the winter energy payment which goes to all beneficiaries and pensioners, and subsidies for working families, new parents and state housing tenants.
Electricity firms Genesis, Meridian and Mercury – all majority owned by the government – would be fully privatised to raise $16b, along with Transpower, NZ Post, KiwiRail, and Pāmu Farming.
Universities would lose $2.7b in subsidies which are used to help keep fees down and “modest, affordable” interest would be charges on student loans.
Government departments based on demographics would be abolished, meaning an end to ministries of ethnic communities, Māori development, women and Pacific people, with the Human Rights Commission thrown in for good measure.
RNZ and NZ on Air would lose their status, and funding, as Crown entities, becoming non-profit bodies, while film subsidies would also be canned.
Aside from compulsory superannuation contributions, the NZTU blueprint contains no new levies, such as a capital gains tax. Nor does it propose a crackdown on corporate tax evasion, which ultimately increases the burden on individual PAYE taxpayers.
“Tough decisions do need to be made now and simply ruling out anything previous government has seen as ‘too hard’ is not sustainable,” NZTU said in the report.
0 Comments